Auditing in the Automotive Industry

Auditing in the Automotive Industry

Introduction

This paper is written as a part of the study course in Auditing under the guidance of Professor xxxxxxx. The purpose of current paper is to analyze the specific accounting and auditing procedures in the automotive industry. Presented materials are based on auditing industry standards, course's text book, as well as it makes use of additional sources listed on the page of cited works. It will be shown in the paper that the competition within automotive industry presents major risk and challenge from the point of view of the high management. As a result, the management's assertions include consideration regarding globalization of the market and involvement of thousands participants in the assemblage of final product process, emphasizing procedures of acquisition and payment, while maintaining optimized inventory. A company controls, embedded into mentioned areas of activity, would be especially strong, considering precision, automation and timeliness of manufacturing process. Therefore, any auditing engagement within automotive industry implies that an auditor must focus on the acquisition and payment controls as a first priority goal in the process of discovering material misstatements.

Overview of the Automotive Industry

Obtaining an understanding of a business entity is usually a first step and an essential aspect of performing an audit. When planning an integrated audit, "the auditor should evaluate whether the following matters are important to the company's financial statements and internal control over financial reporting and, if so, how they will affect the auditor's procedures -

* Matters affecting the industry in which the company operates, such as financial reporting practices, economic conditions, laws and regulations, and technological changes;

* Matters relating to the company's business, including its organization, operating characteristics, and capital structure. (Auditing Standard No.5, par.9)

The automobile industry is a complex business activity involving advanced technologies and a high degree of integration. The product usually has a long development cycle from initial market research, product development to manufacture and final sales. The manufacturing process is also very complex and involves a wide range of technologies and hundreds of suppliers from numerous industries.

The automotive market has cyclical and seasonal nature. Very seldom companies mention this characteristic in the annual reports: " The automotive market is cyclical and is dependent on consumer spending, on the availability of consumer credit and, to a certain extent, on customer sales incentives. Economic factors adversely affecting consumer demand for automobiles and